George Papandreou, under intense pressure to end the political uncertainty engulfing Greece, is expected to formally resign immediately as prime minister after convening an emergency cabinet meeting.

Sunday's extraordinary cabinet session would be the crisis-hit leader's last as prime minister, a government spokesman confirmed as cross-party talks to form a national unity government continued behind closed doors for a second day. Papandreou would quit once personnel of the new administration had been agreed, he said.

"We just have to wait for the prime minister's announcements in the cabinet," veteran socialist Telemachos Hytiris told Greek state television. "Everything must be wrapped up within the day otherwise tomorrow it will be hell."

The creation of a broad-based interim government representing Greece's entire political spectrum is essential to implementing a new bailout programme from the EU and International Monetary Fund that foresees Athens pushing ahead with painful austerity measures, officials in Brussels say.

For the first time since joining the then European Economic Community in 1981, Greece has been told in no uncertain words that its membership of the bloc is at stake if it fails, within weeks, to approve the latest rescue plan for the country.

"We have called for a national unity government and remain persuaded that it is the convincing way of restoring confidence and meeting the commitments," said Olli Rehn, the EU economic and monetary affairs commissioner.

Since being forced to go cap in hand to the EU and IMF for rescue funds last May, Greece's warring political parties have come under enormous pressure to overcome their differences and agree on a common strategy to exit the nation from its spiralling debt trap. Evangelos Venizelos, the Greek finance minister who also holds the post of deputy premier, has likened the country's predicament to a matter of life or death, "of remaining in the eurozone, as a member of the developed world, or going back to the 1960s".

Last week, Venizelos admitted that Athens's finances were hanging by a thread with public coffers due to run out by mid-December. Bankruptcy would export the tragedy that is Greece across the eurozone as EU member states took the impact of the country's financial collapse.

International figures, including IMF managing director Christine Lagarde, have pressed upon Athens the need for political consensus before lenders part with more loans.

"At the IMF's annual meeting in Washington the first thing Lagarde emphasised in talks with Venizelos was the need for consensus," confided a top aide to the minister. "She asked him bluntly, 'What Greece am I talking to, the one who endorses reforms, who accepts austerity or the one who doesn't?' She was very concerned by the stance of the political opposition, especially the [main opposition] conservative party which has repeatedly refused to endorse the [EU-IMF] fiscal adjustment programmes."

The hard-won accord, which will also involve banks accepting a 50% "haircut" on their holdings of Greek debt, had been met with widespread fury in Greece where many in a population already hit by successive waves of belt tightening fear it will mean further austerity. Antonis Samaras, the main opposition leader, said it would condemn the country and economy, which has contracted by nearly 16% since mid 2009, to "a decade of deeper recession".

In power since October 2009, Papandreou signalled he would step aside after narrowly winning a nail-biting confidence vote in his government late on Friday. "I am not tied to my chair," he declared on Saturday after formally launching the push for a new coalition government following talks with head of state president Karolos Papoulias.

But his refusal to plainly articulate his intent has clearly cast a shadow over the attempts to form a new government. Upping the ante, Samaras added to the pressure on Papandreou by saying he had to resign following his own talks with Papoulias.

"As long as Mr Papandreou doesn't resign he is blocking what is foreseen by the constitution. I am determined to help as long as he resigns and everything takes its course."

Candidates being considered for the post include Petros Molyviatos, a former conservative foreign minister who is well respected abroad and Loukas Papademou, the erstwhile vice-president of the European Central Bank.

The socialist prime minister has faced growing calls to step down at home and abroad since shocking markets and world leaders with an ill-timed decision, announced last Monday, to put the 27 October bailout agreement to popular vote. After being publicly dressed down by French President Nicholas Sarkozy and German Chancellor Angela Merkel, the 59-year-old politician was forced to back down and shelve the referendum plan but not without incurring enormous damage to his reputation both in and outside of Greece.

Whatever administration emerges will have a life-span of four months before early elections are called.

On Saturday evening, the political elite in Athens faced the double challenge of announcing a government before markets open in Europe on Monday and EU finance ministers meet to discuss Greece's fate at a Eurogroup meeting.

"There is no picture of what will happen yet," the deputy foreign minister, Dimitris Dollis, told the Guardian before going in to the cabinet meeting. "We'll just have to see."